USDCAD has been trading lower in the past few days, after breaking below support at the 1.2450 minor psychological level. 

Since then, the pair has tested support at the 1.2100 major psychological level and showed signs of retracing.

Using the Fibonacci retracement tool on the latest swing high and low on the 1-hour time frame indicates that the 61.8% level lines up with the broken support. This could serve as a resistance level during the market correction before price resumes its drop.

However, the longer-term EMA also lines up with the 38.2% Fibonacci retracement level, which might keep further gains in check if the correction is shallow. Once USDCAD resumes its drop, price could retest the previous lows near the 1.2100 handle or create new lows closer to 1.2000.

Stochastic is already indicating overbought conditions, which means that buyers are already tired and that sellers could jump in. For now, the oscillator is still climbing so buying pressure is still in play and a higher pullback is possible.

Data from the US economy came in mostly weaker than expected in the prior weeks, suggesting that the Fed isn’t likely to hike interest rates in June. Analysts say that the downturn in hiring and spending might be enough for Fed policymakers to sit on their hands even until September.

Meanwhile, data from Canada has surprised to the upside, leading BOC Governor Poloz to sound a bit more upbeat in his latest rate statement. He hinted that further rate cuts are no longer on the table as oil prices appear to have bottomed out and that a recovery is likely to take place around the second half of this year.

With that, the path of least resistance is to the downside for now, especially if US data continues to disappoint. There are no top-tier reports due from the US today while Canada has its wholesale sales data on tap.

By Kate Curtis from Trader’s Way